Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Quantum AI Stocks Investing Priority - 26th Jan 22
Is Everyone Going To Be Right About This Stocks Bear Market?- 26th Jan 22
Stock Market Glass Half Empty or Half Full? - 26th Jan 22
Stock Market Quoted As Saying 'The Reports Of My Demise Are Greatly Exaggerated' - 26th Jan 22
The Synthetic Dividend Option To Generate Profits - 26th Jan 22
The Beginner's Guide to Credit Repair - 26th Jan 22
AI Tech Stocks State Going into the CRASH and Capitalising on the Metaverse - 25th Jan 22
Stock Market Relief Rally, Maybe? - 25th Jan 22
Why Gold’s Latest Rally Is Nothing to Get Excited About - 25th Jan 22
Gold Slides and Rebounds in 2022 - 25th Jan 22
Gold; a stellar picture - 25th Jan 22
CATHY WOOD ARK GARBAGE ARK Funds Heading for 90% STOCK CRASH! - 22nd Jan 22
Gold Is the Belle of the Ball. Will Its Dance Turn Bearish? - 22nd Jan 22
Best Neighborhoods to Buy Real Estate in San Diego - 22nd Jan 22
Stock Market January PANIC AI Tech Stocks Buying Opp - Trend Forecast 2022 - 21st Jan 21
How to Get Rich in the MetaVerse - 20th Jan 21
Should you Buy Payment Disruptor Stocks in 2022? - 20th Jan 21
2022 the Year of Smart devices, Electric Vehicles, and AI Startups - 20th Jan 21
Oil Markets More Animated by Geopolitics, Supply, and Demand - 20th Jan 21
WARNING - AI STOCK MARKET CRASH / BEAR SWITCH TRIGGERED! - 19th Jan 22
Fake It Till You Make It: Will Silver’s Motto Work on Gold? - 19th Jan 22
Crude Oil Smashing Stocks - 19th Jan 22
US Stagflation: The Global Risk of 2022 - 19th Jan 22
Stock Market Trend Forecast Early 2022 - Tech Growth Value Stocks Rotation - 18th Jan 22
Stock Market Sentiment Speaks: Are We Setting Up For A 'Mini-Crash'? - 18th Jan 22
Mobile Sports Betting is on a rise: Here’s why - 18th Jan 22
Exponential AI Stocks Mega-trend - 17th Jan 22
THE NEXT BITCOIN - 17th Jan 22
Gold Price Predictions for 2022 - 17th Jan 22
How Do Debt Relief Services Work To Reduce The Amount You Owe? - 17th Jan 22
RIVIAN IPO Illustrates We are in the Mother of all Stock Market Bubbles - 16th Jan 22
All Market Eyes on Copper - 16th Jan 22
The US Dollar Had a Slip-Up, but Gold Turned a Blind Eye to It - 16th Jan 22
A Stock Market Top for the Ages - 16th Jan 22
FREETRADE - Stock Investing Platform, the Good, Bad and Ugly Review, Free Shares, Cancelled Orders - 15th Jan 22
WD 14tb My Book External Drive Unboxing, Testing and Benchmark Performance Amazon Buy Review - 15th Jan 22
Toyland Ferris Wheel Birthday Fun at Gulliver's Rother Valley UK Theme Park 2022 - 15th Jan 22
What You Should Know About a TailoredPay High Risk Merchant Account - 15th Jan 22

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Gross Uses Sly Semantics to Hide Shorts on Government Bonds

Interest-Rates / US Bonds May 18, 2011 - 01:19 PM GMT

By: Dr_Jeff_Lewis

Interest-Rates

Bill Gross, manager of PIMCOs Total Return Fund, the largest mutual fund in the world, claimed that reports indicating he was net short on US Treasuries were apparently part of a gross misunderstanding.  Having reported this news to our readers, we thought it absolutely important to continue following up on this story until it reaches its conclusion.


After the Total Return fund noted that it had gone short government debt in April, investors took notice, and word spread quickly that the world’s greatest bond investor, none other than Bill Gross, had shorted US Treasury securities.  Today, nearly a month after the news began to circulate around the financial markets, Gross says this simply wasn’t the case.

Instead, he contends that his fund had never shorted US Treasuries, which conflicted with SEC filings that showed otherwise.

In truth, PIMCO wasn’t ever short US Treasury securities.  PIMCO was, however, short debt issues that are US government-related.  The column in the SEC filing to which this short-position is attributed can include anything from T-bills and bonds to agencies (MBS debt, mostly), interest rate swaps, Treasury futures, and FDIC-insured debt, since the FDIC is a member of the US government.

The short sale, which was then worth only 3% of the fund’s $240 billion in assets, or just under $7.5 billion, has since been upped.  In just one month, Bill Gross has not only emerged to suggest that he’s not short US Treasury securities, but he has also doubled-down on his short positions, adding to the position so that as much as 4% of the current Total Return Portfolio is now short US government debt.

The Reality

The reality of the situation is that Bill Gross may not have shorted US Treasuries, but he has absolutely shorted government-related debt to the tune of nearly $10 billion.  To imply that he had not done so is at best disingenuous, and at worse, a careful play on investors’ misinterpretation of the semantic difference between Gross’s spoken word and his big bets against US government debt.

In all reality, there is very little difference between US Treasury debt and US government-related debt.  While mortgage-backed securities may be backed primarily by the hundreds of millions of mortgage payments that flow into Fannie Mae and Freddie Mac each month, they are, as they have been for the past two years, backed also 100% by the full faith and credit of the US taxpayer.  FDIC-insured securities are also backed by the US government.  When you go to purchase either of these securities, you care very little if the original institution can make good on their debt—who cares when the US Treasury is the one to bail them out?

The reality of the situation is that for Gross to go short US debt in any fashion is the equivalent of going short US Treasuries, just as it is the equivalent of shorting Agency debt, Treasury futures, interest rate swaps, and a myriad of other investments that are all backed by the US Government. 

Gross is short the US Government’s debt, regardless of whether or not it’s US Treasuries, FDIC-insured short-term credit facilities, or interest rate swaps which would leave PIMCO rolling in paper money should US Treasuries fall after the Fed ceases to monetize the debt.

One has to wonder why Gross, a man who has long been the king of the bond markets, would ever come out to make a statement based purely on semantics.  Someone had to have encouraged his announcement; otherwise, it makes little sense why Bill Gross himself would ever suggest that semantic differences really change the game here.

In effect, what Gross just said could be explained in other words as, “I didn’t short Treasuries; I just shorted other US Debt that has a different name.” 

By Dr. Jeff Lewis

    Dr. Jeffrey Lewis, in addition to running a busy medical practice, is the editor of Silver-Coin-Investor.com and Hard-Money-Newsletter-Review.com

    Copyright © 2011 Dr. Jeff Lewis- All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in